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Accounting · Bank Reconciliation Statement

Adjusted Cash Book and Errors in Records (Bank Reconciliation)

Updated 1 October 2026 · Fact-checked

An adjusted cash book is the cash book bank column corrected for items the bank has recorded but you have not, and for your own errors. To solve it, correct the cash book balance first, then reconcile that adjusted balance with the pass book using only timing differences and bank errors.

Understand Adjusted Cash Book and Errors in Records

Your cash book is your record of the bank account. The pass book is the bank's record of the same account. The two balances often differ. Some differences are your fault, some are the bank's, and some are only about timing.

The cleanest way to handle this is in two stages. Stage one: fix your own cash book. Stage two: reconcile the corrected balance with the pass book.

Stage one is the adjusted cash book. Put into it everything the bank has done that you have not yet recorded. Examples are bank charges, interest charged or earned, direct deposits by customers, payments made by the bank on your standing instructions, and cheques you deposited that the bank has dishonoured. Also correct your own mistakes, such as wrong totals, wrong amounts, items posted on the wrong side, or items left out.

Stage two is the BRS. After adjustment, only three kinds of items remain: cheques issued but not yet presented, cheques deposited but not yet credited, and any error made by the bank. None of these needs an entry in your books. The bank will fix its own error. Timing items clear by themselves.

The test for each item is simple: does my cash book need to change? If yes, it goes in the adjusted cash book. If no, it goes in the BRS.

Key rules to remember

Adjusted cash book balance
Adjusted balance = Unadjusted cash book balance + items that increase the bank balance − items that decrease it
Increases: direct deposits, interest credited, dividends collected by bank, receipts-side undercast, payments-side overcast. Decreases: bank charges, interest debited, direct payments, dishonoured cheques, receipts-side overcast, payments-side undercast.
Which items need an adjustment
Cash book entry needed = bank items not yet recorded + errors in the cash book
Cheques issued not presented, cheques deposited not credited and bank errors never go into the cash book.
Debit and credit balance
Debit balance in cash book = money at bank. Credit balance = bank overdraft
Pass book is the reverse. Credit balance in pass book = money at bank. Debit balance in pass book = overdraft.
Reconciliation from adjusted balance (favourable balance)
Pass book balance = Adjusted cash book balance + cheques issued not presented − cheques deposited not credited − amount wrongly debited by bank + amount wrongly credited by bank
For a bank error with a favourable balance, deduct what the bank wrongly debited (the pass book balance is too low) and add what the bank wrongly credited (the pass book balance is too high). For an overdraft, the signs of the bank-error items and the timing items flip, as in the overdraft example below.
Dishonoured cheque entry
Dr Customer's account, Cr Bank (cash book credit side)
The cheque was a receipt earlier. Dishonour reverses it, so the bank balance falls.

How to solve Adjusted Cash Book and Errors in Records questions

Use this method for any question that gives a cash book balance with errors and bank items. Keep the two stages separate on paper.

  1. 1Read the question and note whether the opening balance is a debit balance or an overdraft. Mark it clearly with a sign.
  2. 2Sort every item into one of three groups: (a) bank items not in the cash book, (b) errors in the cash book, (c) timing differences or bank errors.
  3. 3Prepare the adjusted cash book statement. Start with the given balance and add or deduct group (a) and (b) items one by one. Write each item's name beside the amount.
  4. 4Check the direction of each cash book error. An overcast of the receipts side makes the balance too high, so deduct it. An overcast of the payments side makes the balance too low, so add it.
  5. 5Write the adjusted balance in a box. This is the correct balance of your books.
  6. 6Prepare the BRS starting from the adjusted balance. Include only group (c) items. Reverse the effect of each item to reach the pass book balance.
  7. 7Cross-check. If a pass book balance is also given, your BRS must end at that figure. If it does not, recheck the direction of each item.
  8. 8State the final answer clearly, with the words 'as per adjusted cash book' and 'as per pass book' written in the labels.

Quickest way: Two-column sorting under time pressure

When to use it: Use it when a question has many items and you have only a few minutes. It also works when the question asks for both adjusted cash book and BRS.

  1. Draw two columns on rough paper: 'Change my books' and 'Only BRS'.
  2. Tick each item as you read it. Items from the bank (charges, direct credit, dishonour, direct debit) go left. Cheques not yet cleared and bank errors go right.
  3. Write the signed total of the left column and apply it to the cash book balance once. Show the item-wise working in the answer, not just the total.
  4. Treat an overdraft as a negative number. Do all the arithmetic with signs and convert back to 'overdraft' only in the final label.
  5. In the BRS, only the right-column items appear. If a left-column item has appeared there, you have made an error.
  6. Present both statements neatly with headings. In a subjective paper, step marks are given for correct treatment of each item even if the final figure goes wrong.

Common mistakes in Adjusted Cash Book and Errors in Records

  • Putting bank charges or a dishonoured cheque in the BRS instead of the adjusted cash book.

    Students learn the BRS first and treat every difference as a BRS item.

    Fix: Ask whether your books are missing the entry. Bank charges and dishonour are facts you have to record, so they go into the cash book.

  • Adding a dishonoured cheque to the cash book balance.

    The cheque was a receipt, so students think it stays an addition.

    Fix: Dishonour reverses the receipt. Credit the bank in the cash book, which lowers the balance.

  • Adjusting the cash book for a bank error.

    The error shows up as a difference, so it feels like it needs a correction in your books.

    Fix: A bank error is the bank's to correct. Show it only in the BRS.

  • Getting the direction wrong for an overcast or undercast.

    Students do not think about which side of the cash book is wrong.

    Fix: Decide which side is wrong first. Receipts overcast: deduct. Payments overcast: add. Receipts undercast: add. Payments undercast: deduct.

  • Mixing up the sign when the balance is an overdraft.

    Overdraft is a credit balance in the cash book, so every effect flips.

    Fix: Write the overdraft as a negative figure from the start. Charges and dishonour make it more negative. Reverse the sign only in the final label.

  • Skipping the adjusted balance and going straight from the old balance to the pass book.

    It feels faster, but one statement has to carry correct and incorrect items together.

    Fix: Always show the adjusted balance. It earns marks and keeps the BRS short.

Worked examples

Example 1

On 31 March 2025, the bank column of Mehra Traders' cash book showed a debit balance of ₹48,500. On checking with the pass book you find: (i) cheques issued ₹12,000 not yet presented; (ii) cheques deposited ₹7,500 not yet credited; (iii) bank charges ₹250 not entered in the cash book; (iv) a customer's cheque of ₹3,000 was dishonoured and not recorded; (v) the bank credited interest of ₹600 not yet entered; (vi) a customer deposited ₹5,000 directly into the bank, not yet entered; (vii) the payments side of the cash book was overcast by ₹900. Prepare the adjusted cash book and the BRS.

Show the solution
  1. Sort items. Items (iii) to (vii) change the cash book. Items (i) and (ii) are for the BRS only.
  2. Start with the unadjusted balance: ₹48,500 (debit).
  3. Less bank charges: 48,500 − 250 = 48,250.
  4. Less dishonoured cheque: 48,250 − 3,000 = 45,250.
  5. Add interest credited by the bank: 45,250 + 600 = 45,850.
  6. Add direct deposit by the customer: 45,850 + 5,000 = 50,850.
  7. Add back the overcast on the payments side. Payments were overstated, so the balance was too low: 50,850 + 900 = 51,750.
  8. Adjusted cash book balance = ₹51,750 (debit).
  9. BRS: Balance as per adjusted cash book ₹51,750. Add cheques issued but not presented ₹12,000 (the bank has not yet paid them, so its balance is higher than yours). Total ₹63,750. Less cheques deposited but not credited ₹7,500 (the bank has not yet credited them, so its balance is lower than yours).
  10. Balance as per pass book = 63,750 − 7,500 = ₹56,250.

Answer: Adjusted cash book balance ₹51,750 (debit). Balance as per pass book ₹56,250 (credit).

Example 2

The cash book of Rao & Co. showed a bank overdraft of ₹15,200. You find: (i) bank charges ₹300 not entered; (ii) a customer's cheque for ₹4,000 was dishonoured and not recorded; (iii) an insurance premium of ₹1,800 paid directly by the bank not entered; (iv) the receipts side of the cash book was overcast by ₹500; (v) cheques issued ₹6,000 not yet presented; (vi) a cheque of ₹2,500 deposited has not been collected by the bank; (vii) the bank wrongly debited ₹1,200 to Rao & Co.'s account. Prepare the adjusted cash book and the BRS.

Show the solution
  1. Treat the overdraft as negative: −15,200. Items (i) to (iv) change the cash book. Items (v) to (vii) are BRS items.
  2. Bank charges: −15,200 − 300 = −15,500.
  3. Dishonoured cheque: −15,500 − 4,000 = −19,500.
  4. Insurance paid by bank: −19,500 − 1,800 = −21,300.
  5. Receipts overcast: debits were overstated by ₹500, so deduct 500: −21,300 − 500 = −21,800.
  6. Adjusted overdraft as per cash book = ₹21,800.
  7. BRS (overdraft). Overdraft as per adjusted cash book ₹21,800.
  8. Less cheques issued but not presented ₹6,000 (the bank has not yet paid, so its overdraft is smaller): 21,800 − 6,000 = 15,800.
  9. Add cheque deposited but not collected ₹2,500 (the bank has not yet credited it, so its overdraft is larger): 15,800 + 2,500 = 18,300.
  10. Add the amount wrongly debited by the bank ₹1,200 (the bank's overdraft is larger than it should be): 18,300 + 1,200 = 19,500.
  11. Overdraft as per pass book = ₹19,500.

Answer: Adjusted overdraft as per cash book ₹21,800. Overdraft as per pass book ₹19,500.

Exam tips

  • Show the adjusted cash book as a separate statement with item-wise working. Examiners award marks for each correct adjustment.
  • Read the opening balance label twice. 'Overdraft as per cash book' and 'balance as per cash book' reverse every sign.
  • If a pass book balance is given, use it as a check. If your BRS does not reach it, recheck the direction of the last few items.
  • If the question asks only for a BRS, still do the cash book adjustments first. Skipping them is the most common way to lose marks.
  • Write a short heading for each item, for example 'Dishonour of cheque'. A clear label can earn a step mark even if the arithmetic slips.

Practice questions from Bank Reconciliation Statement

Adjusted Cash Book and Errors in Records: frequently asked questions

What is an adjusted cash book?

It is the bank column of the cash book after you add the items the bank has recorded but you have not, and after you correct your own errors. The balance you get is the correct balance of your books. You then use it as the starting point for the BRS.

Which items go in the adjusted cash book and which in the BRS?

Bank charges, interest, direct deposits, direct payments, dishonoured cheques and your own errors go in the adjusted cash book. Cheques issued but not presented, cheques deposited but not credited, and bank errors go only in the BRS. The test is whether your own books need a change.

How do I treat a dishonoured cheque in bank reconciliation?

If it is not yet in your cash book, credit the bank column. This reduces your bank balance. In the BRS it does not appear, because the cash book has already been adjusted for it.

Do I need an adjusted cash book if the question gives only the pass book balance?

Yes, if the question also gives cash book items to correct. Adjust the cash book first to see the correct balance. Then reconcile it with the pass book using only timing items and bank errors.